Important Definition related to this article
Share(s): Shares means the ownership in the company or we can say shares are units of ownership in a company. In the propionate of total capital, every shares holder (who holds shares) gets the profit from the company. Shares give voting rights and the benefits to enjoy the dividend declared by the company for distribution among the shareholders.
Shareholder: A person/entity who holds the share(s) in the company and having the name in the members of the company is called a shareholder
Dividend: A part of profit/reserves declared by the company to distribute among the shareholders.
Voting Rights: A right to vote or to take part in the decision of the company for anything that needs shareholder's approval.
Indian Stamp Act: An act that talks about the stamp duty/fee payable by the concerned to the government and much more details. Act passed by both the parliament houses, approved and signed by the Hon’ble President of India, and published in the Official Gazette of India.
Companies Act: An act that talks about everything related to compliance to opening the company, running the company, and closing the company, and much more details. Act passed by both the parliament houses, approved and signed by the Hon’ble President of India, and published in the Official Gazette of India.
Stamp duty: Duty/fees payable on the shares certificate allotted/issued to the person/entity as per the Indian Stamp Act.
Person/Entity: An Individual, Company, Firm, HUF, or other prescribed under the act who buys or gets the shares of the company.
Share Certificate: A certificate that shows the details of the shareholder and the number of shares held by the person/entity.
Authority: Authority means state/city who collects the stamp duty through revenue department/District Collector on shares value from the company who allotted/issued/both shares certificates.
Facts about payment of Stamp Duty on the issuance of share certificates
Indian stamp Act (amended) came into force on the 1st day of July 1899, hence it’s known as the ‘Indian Stamp Act, 1899’.
In the year 1624 Holland introduced the act (stamp law) to impose duty/tax on Commercial, Financial, or other instruments.
British followed the same and bought the opinion to India by declaring Regulation VI of 1797 which was limited in its extent to Bengal, Bihar, Orissa, and Benaras.
After the Regulations in the year, 1860 first act relating to Stamp duties (act 10 of 1860) was enacted in India. The act was amended in the same year and repealed and replaced by Act 10 of 1860. After that many numbers of amendments took place and finally in the year 1899 a new act came into force which repealed the previous act.
Nowadays in this modern world Stamp Duty collection is a good source to generate huge revenue for the Government.
The government is taking stamping on various documentation, registration, etc. including but not limited to Registration of property, transfer of property, Registration of agreements, sale/transfer of various assets, Loan Agreements, Issuance of Debentures, shares, Registration of MOUs, Memorandum, articles and lots more.
Hence allotment/issuance of shares, and debentures are included in the Stamp Duty act, of 1899.
Till the above discussion, we have understood that stamp duty is an important part of revenue for the Government and Government plays a vital and important role in the progress of society, the country by increasing education, medical facilities, security, infrastructure, and etc. The government needs a good amount of budget to fulfill all the requirements in the favor of the county. Hence we all should understand and take responsibility to fulfill the mandates under the act.
Compliance and Duty are payable on shares under the act
There are various amendments under the act that talks about the duty on the shares. This power accordingly lies with the states. In some states, the duty might be Nil or Rs 1 or lesser while in some states duty is in some % of the total market/issuance value of the shares. There is also a notification that says now the uniform rate on the issuance of shares shall be 0.005% and 0.015% on the transfer of shares.
Currently, states are collecting 0.1% i.e. 100 Rs for every 100,000.00 from the companies.
We are not talking here about why they are collecting or whether are they right or wrong.
We are here to understand the compliance and fulfillment of the compliance.
Rate of the Stamp duty in Haryana & NCT Delhi
We will consider the current rate of stamp duty as per Haryana and NCT Delhi. Both the respective states are collecting 0.1% which is 100 rupees for every 100,000.00.
Time Limit to complete the compliance
Companies act says that allotment/issuance of shares must be issued within 60 days from the taking application money/incorporation of the company and issuance of shares certificates must be within 30 days from the allotment of shares.
Documentation/File must be submitted with the respective authority within 30 from the issuance of the shares certificate or the due date of issuance of shares certificate(s).
A List of Documents needs to be submitted
- COI, MOA & AOA of the company
- PAN Copy of the Company
- PAS -3 / Incorporation form of the company
- List of Allottees with the number of shares, face value, premium, and total value
- Copy of Board Resolution in the related matter
- Signed copy of Share Certificates
- List of Directors
- Authority letter in the favor of the Practicing Company Secretary / other professional/ other concerned.
- List of Directors and Covering letter
- Affidavits
- Any other documents prescribed/deemed fit in the eyes of the department.
Consequences / Penalties
This is very essential part at last for every concerned including Company, Professionals, Stakeholders, Directors, and Government.
Here the Penalty is 10 (ten) times the duty payable on the allotment(s). Let's understand this with an example.
Company: M/s QZVZAZ India Private Limited (imaginary name) issues 10,00,000 (Ten Lakhs) Equity and Preference Shares of Rs 10.00 (Ten) each with a premium of INR 1,000.00 (One Thousand) on every share.
Now Total Number of Shares: 10,00,000 (Ten Lakhs)
- Total Value of each share: 1010 (10+1000)
- Total Value of the Allotment: 10,00,000 * 1010 = 1,01,00,00,000 (One hundread and one crores only)
- Payable Stamp Duty within 30 (thirty) days on the value is 10,10,000.00 (Ten lakhs and Ten thousand only)
- Penalty on this after completion of 30 days is up to 10 times 10,10,000 i.e. 10,10,000*10 = 1,01,00,000 (One crore and one lakh).
Solution for the Companies to be safe from the huge penalties
Yes, the good news is that the penalty imposed by the government is up to 10(ten) times the total duty payable by the company. It means Government will analyze the delaying reason and will also consider the condonation.
Hence while preparing the documentation please be active to draft the proper condonation containing the valid and original reason(s) along with the supporting documents to not impose the penalty on the value.
This is the purely legal manner and acceptable by the departments. Pl. be careful in this while filing the documents with the government.
Disclaimer: I hereby declare that this article is purely for educational and learning purposes. This article can not be used in a legal manner in any way including but not limited to filing a complaint against any company or department. No company can file a suit against the department based on this article. I hereby declare that there may be or may not be some mistakes in the definition, year, amount, percentage, calculation, etc. I further declare that any name(s) used in this article is purely for an example purpose and its only imaginary name does not have any relationship with any person/entity/company/etc.
Suggestion: If you find any discrepancies kindly contact to me for the alteration. Pl. call me on 95 82 00 9494 or write to me at nitin.grover@cstaxindia.com. I love to hear from you about the changes.
CAclubindia
